Hyundai nurtures cash cows overseas
Top builder to focus on international businesses
By Kim Tae-gyu
Hyundai Engineering & Construction (E&C), the country's primary construction firm, went down in local history by advancing into overseas markets in 1965 for the first time among domestic builders.
The Seoul-based company spearheaded the Middle East boom in the 1970s so that lots of funds flowed into Korea via large-sized construction projects in the area. The dollars generated substantially helped the country chalk up dazzlingly fast economic growth thereafter.
During the second decade of the new millennium, Hyundai E&C is looking to promote another overseas construction boom under the stewardship of its charismatic CEO Kim Joong-kyum.
``Currently, approximately half of our turnover comes from global businesses. Over the long haul, we look to crank up the proportion to around 70 percent,'' Kim told The Korea Times during a recent interview.
In other words, international businesses are its new cash cows. By wading into the global arenas in a full-fledged manner, the outfit is striving to more than double its sales to approximately 20 trillion won by 2015.
Living up to his words
Observers point out that the bold targets are not so overblown in consideration of the company's performance over the past one and a half years since Kim took the helm of the firm in early 2009.
Last year, Hyundai got seven overseas orders worth about $4.5 billion. The amount surpassed the $5 billion mark during the first half of this year thanks to nuclear facility exports to the United Arab Emirates (UAE).
``Nobody knows how many global orders Hyundai will be able to secure later this year. But the chances are that its 2010 figures will top $10 billion,'' Daishin Securities analyst Cho Yoon-ho said.
``With domestic construction markets showing clear signs of saturation, it is also the right direction to knock on other countries more briskly. In my view, the 70-percent proportion goal is reasonable.''
Woori Investment & Securities researcher Wayne Lee concurs.
``The market consensus is that Hyundai would garner orders worth $10 billion this year. The debate is whether or not the figures will reach its official goal of $12 billion,'' Lee said.
Early this year, Kim announced that Hyundai is looking to receive international orders valued at more than $12 billion in 2010.
Respectable track records
Last year, Hyundai E&C won a pair of mega contracts ― bigger than $1 billion ― in the Middle East.
In March 2009, it was picked for the Karan gas field development project in Saudi Arabia, a $1.36 billion contract awarded by the oil-rich country's state-run Saudi Aramco.
Just four months later, Hyundai was selected as developer of the Habshan-5 Utilities and Off-sites projects, valued at $1.7 billion.
``The program, for which the company won the order as a single contractor, consists of five packages, concerning the integration and development of gas fields in Abu Dhabi,'' Hyundai said back then in a press release.
``Under the program, Hyundai is responsible for package No. 2 ― to erect building structures necessary to produce gas and have it processed, including the power supply, and liquefied natural gas and sulphur storage facilities.''
During the waning days of 2009, Korea won the hard-fought competition for a $20 billion nuclear power plant contract with the UAE, the largest energy deal in the Middle East. The amount could be extended to $40 billion when operation fees are factored in.
Earlier this year, Hyundai secured about $3.1 billion in the Gulf nuclear deal and this boosted the company's overseas orders for the first six months. Hyundai thinks that the UAE exploits are just the beginning.
``We expect that more than 400 nuclear power plants could be ordered down the road. Based on the success of the UAE agreement, we will continue to expand our market share in the lucrative area,'' a Hyundai representative said.
``Toward that end, we will develop nuclear technologies unique to us as well as maintaining close relationships with associated parties.''
Also included in the major orders are work at the South Pars Gas Fields in Iran and the construction of a Marriott Hotel in Hanoi, Vietnam.
Record sales and credit ratings
The overseas work underpins both the top and bottom lines of Hyundai E&C, the country's oldest builder established in the late 1940s.
Its revenues reached a record high 9.3 trillion won last year, up 27.6 percent from 2008 to net 455.8 billion won in profits, up 22 percent.
The firm looks to renew its records this year by racking up more than 10 trillion won in turnover and 500 billion won in operating income.
Things have been good so far because the construction behemoth clocked upside of 2 trillion won in sales over the first quarter of the year for 123.6 billion won in profits.
The strong business performances prompt ratings services to upgrade the credit rating of the corporation.
Korea's top three rating services ― Korea Investors Service, Nice Investors Service and Korea Ratings ― jacked up their rating on bonds and notes issued by Hyundai late last year.
Bonds were raised from ``A+'' to ``AA-'', the highest-ever ratings in the country's building industry, while its notes enjoyed an upgrade from ``A2+'' to ``A1'', also unprecedented.
The move came just a year after its ratings were revised up in June 2008. In fact, over the past three years, Hyundai E&C has savored upgrades by up to four notches.
The company picked several major catalysts behind the upward revision including its diversified national and global business base; a large order backlog; unparalleled competitiveness in winning awards; strong growth in securing orders from overseas; an increase in brand awareness; and an improvement in its financial structure through continued profit generation.
``The recent upgrade will help us cut financial costs as a bond issuer, further strengthening competitiveness in the global market as well,'' a senior executive at the firm said.